Opinion
No. 12–P–1220.
2013-05-29
Kevin R. GRALTON v. Michelle GRALTON.
By the Court (GRAINGER, BROWN & RUBIN, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
During the pendency of the action below, the Supreme Judicial Court decided Adams v. Adams, 459 Mass. 361, 388–389 (2011), which makes clear that where, as in this case, an interest in a pass-through entity is valued using the income method, the value must be “tax affected” utilizing the approach described in Bernier v. Bernier, 449 Mass. 774, 790 (2007) ( Bernier I ). The tax-affected valuation of the interest must be used unless it is “materially at odds with the totality of the circumstances or ... at variance with the requirements of the equitable distribution statute.” Bernier I, 449 Mass. at 785.
In this case, the judge did not tax affect the husband's interest in KAM Corporate Trust (KAM), an S corporation, nor did he determine whether a tax-affected valuation would be at odds with the circumstances or the requirements of the statute. Consequently, that aspect of the judgment valuing the interest in the S corporation must be vacated and the case remanded so that it may be reconsidered in conformity with the requirements of Adams and Bernier I. While we note that this court in Bernier v. Bernier, 82 Mass.App.Ct. 81, 90–92 (2012) ( Bernier II ), utilized the dividend tax rate as of the date of valuation in tax affecting the value of the interest in the S corporation there, we also note that we do not read Bernier I or Adams to require invariably the use of a 29.4 percent tax affecting rate in tax affecting the value of the interest in circumstances like those before us where the dividend tax rate on the date of valuation was the same (fifteen percent) as the dividend tax rate in the Kessler decision relied on in Bernier I, 449 Mass. at 787–790 & n. 26. The wife has raised before us a number of arguments why the 29.4 percent rate is not appropriate in this case. While we express no opinion as to the validity of any of these arguments, she is not foreclosed from offering them in the first instance in the trial court on remand. In all other respects, the amended judgment is affirmed. It was not clear error for the judge to adjust the book income of KAM to reflect the overpayment of salaries to its officers. While the husband is correct that the judge used the inflated salary number to determine child support, as well as added the excess salary to KAM's income for valuation purposes, where this is equitable, it is not prohibited. See Champion v. Champion, 54 Mass.App.Ct. 215, 222 (2002); Croak v. Bergeron, 67 Mass.App.Ct. 750, 759 (2006).
Delaware Open MRI Radiology Assocs. v. Kessler, 898 A.2d 290 (Del.Ct. Ch.2006).
We also see no clear error with respect to the rent figures used by the judge in his amended findings of fact and rationale. The judge reduced KAM's income by $96,000, a figure that the court's expert proposed, to reflect its payment of artificially low rents. Where the husband's accountant testified that the amounts stated as actual rent paid to real estate entities owned by the owners of KAM did not include other amounts paid to the real estate entities to cover payments on mortgages, we see no clear error in the judge's determination to utilize the lower rent adjustment proposed by the court's expert.
Finally, we see no error in the “if, as and when” portion of the judge's order since the husband is currently a beneficiary of the Richard T. Gralton Trust B and he listed it as an asset in his financial statements. His argument that the power of appointment in the trust rendered his entitlement a mere expectancy was not raised below, and we will not consider it here in the first instance. See Child v. Child, 58 Mass.App.Ct. 76, 84 (2003).
So much of the amended judgment as sets the distribution of marital property in reliance upon the valuation of the S corporation is vacated, and that aspect of the case is remanded for proceedings consistent with this memorandum and order. The amended judgment is otherwise affirmed.
So ordered.